Friday, April 30, 2010

I am not going to say it is over for this market with the resiliency it has shown, but this week felt like a top was forming with the volatility and the weak finishes on Monday, Tuesday, and Friday. I think the Greek bailout news will be sold. The financials were weak today thanks to GS and company. I think we will go lower next week despite the favorable calendar effect, I think 1165 is in the cards for next week.

The market seems to be shaken up a bit here, especially GS and the financials. Criminal charges are very serious and not to be taken lightly. I think this could bring more fears about other shoes to drop, we'll have to see, but I think this market is vulnerable after 2 days of rallying and we could trend down all day. That is what I believe to be the highest probability scenario.

Yesterday's strength and the continuation of strength in Europe can be summed up in an old adage, buy the rumor. We got definitely oversold in Europe and it bounced as expected. Now the hard part, whether the bounce continues or gets sold off again. I would give this bounce much more credit if we didn't have the heightened expectations going into the weekend of a plush Greece bailout package and of course, Mutual Fund Monday. It could be a sell the news phenomena on Monday. The counter to this is of course Monday is also the first day of the month, which is seasonally bullish. Lots of crosswinds.

Thursday, April 29, 2010

At Tuesday's close, after the 2nd visit to 1180 in a week, I figured we would have a harder time bouncing back above 1200. I was completely wrong, but I also realize the strength of this uptrend and didn't force any shorts. I've been trading lightly and not making any bold moves. The time to short will come. It is a waiting game. In the meantime, there some daytrading opportunities here and there but I see no swing trade opportunities yet. We have the GDP announcement tomorrow, I don't think the shorts want to be exposed to another possible overnight gap up and are probably going to scramble this market higher in the final 30 minutes.

I am beginning to think that the more problems in Europe, the more likely fund managers will allocate cash to US assets and away from European assets. The European markets have been badly lagging the US market, and usually they move very close together, historically there is a much higher correlation between US and Europe than US and Asia. But the more problems that surface in Europe, the more investors flock to US stocks and bonds. The strength in the US seems to be in part from this asset shift from Europe to US. Very counterintuitive.

I think that was it for the correction. It came and went, and we're probably going to go higher from here to retest the highs. It was just another buying opportunity. This market needs to go higher before it can have a substantial pullback. There are still a lot of sidelined investors looking for a pullback or for the all clear sign to jump in. The big picture is clear. We are in a cyclical bull market and the cycle is not finished yet. Sure there will be daytrading short opportunities like earlier this week, but the trend is up. The Fed wants to blow another bubble. Today will probably be a gap and go and we'll probably test 1206.

Wednesday, April 28, 2010

There will be some short covering ahead of the Fed and after the non-news that the Fed will do nothing, there will be a sell on the announcement. After the initial selloff, we should get the start of the real move which should be up to 1191. I see nothing the Fed can say that can make this market go much higher than 1191. I do see things the Fed can say which would make the market swoon, especially if the extended period language is taken out. So ahead of the announcement, a short is the best bet. On the dip that I foresee, I would buy it because if a Spain downgrade doesn't take it down today, I think Bernanke can.

It is Spain's turn to get downgraded by the ratings agencies. The timing is pretty much right around the European close, I wonder if those guys are trying to get the most bang for their buck with these announcements. Anyway, what figured to be a good short sell opportunity ahead of the Fed is now all messed up with this news. I don't have a good feel for what the Fed reaction will be, I expected a sell on the announcement, now that we've already gotten beaten down, its harder to game. It is getting panicky in Europe, I must say a bottom is probably not far away there.

There was a huge amount of volatility in the European market, and we have a low of 1176.75 in the overnight session and a high of 1189.75. A 13 point swing in overnight trade is pretty big, and there seems to be a lot of nervousness about how the Greek problem will be resolved. The contagion is rolling over to Portugal and Spain. The futures are up big and the market seems to smell some kind of positive news out of Europe. That's what it feels like.

The US markets were pretty much oblivious till the fear hit the market all of a sudden. That is what happens in these overbought, overbullish sentiment markets. You get slow creeping upmoves and violent fast downmoves. I don't think we'll go right back up like last week. We'll probably churn at these lower levels or grind lower in the coming days. I'm going to play it carefully, but I think 1170 is good support and 1194-1195 is strong resistance.

Tuesday, April 27, 2010

This market has now transformed from a dip buyer's market to a range bound two way market. I think there will be opportunities both on the long side and the short side in the coming months. Right now, Greece related sovereign debt fears cloud this market, but in reality, it is a distraction from the real fundamentals of the ES. For tomorrow, I expect the market to stabilize ahead of the FOMC meeting. But after the announcement, the sellers are likely to return. It is still risky to go long, and a bit late to go short.

Greece downgraded to junk, Portugal also downgraded by S&P. The European markets are starting to panic, and the contagion is rolling over to the US markets. This market is very vulnerable to a sharp selloff and that's how you can lose 20 points in an hour. A very dangerous market to be long here. It should be interesting for the next 4 hours. I think we'll probably test 1080.

It is Europe dragging down the futures again. There is nothing new under the sun. There is a lot of complacency but there is also a lot of momentum. Selling in the hole when the market has just dipped has been suicidal for the past year. I will be watching probably and won't do much today. The FOMC meeting is tomorrow, so I'm sure we won't be staying down for long.

Monday, April 26, 2010

This market looks like it exhausted itself coming back from Goldman and Greece news the past 1 1/2 weeks. There was a lot of firepower used to bring this market back from 1180 to 1216, and all the conditioned Monday buyers this morning are staring at losses. All the speculation I see in the regional banks tell me that the speculators have no fear. I will be looking to find a spot to get short sometime this week. Longs are poor risk reward at this point.

We knew it was coming. The Treasury is dumping up to 7.6 billion shares of C through Morgan Stanley. This adds up to over $35 billion in C shares being dumped on the market if the whole lot is sold. That is a massive sell order and presents a significant headwind for the market in the coming weeks. Add to that the other IPOs and secondaries that are popping up left and right and you have a supply shock coming. I would expect there to be a correction in the face of all this supply. As for today, its Mutual Fund Monday, of course we are going higher. I am watching and waiting for higher prices to short.

Saturday, April 24, 2010

In the long run (20+ years), the stock market converges to the value of the future discounted cash flows of its earnings over time, which is either paid out in dividends or indirectly through stock buybacks. But in the intermediate and short run, the stock market can converge or diverge from its "fair valuation". That fair valuation is debatable, but using historical valuations is a fairly good barometer for what is fair.

I'd like to talk about the short to intermediate time frame. This can be anything under 5 years. In that time frame, which most traders are focused on, valuation is a small factor compared to momentum, trader sentiment, and short term news / events. This brings me to the current stock market. We have been rallying hard and continuously for over 1 year, and to many, it is unbelieveable because unemployment is still high, the housing market is still weak, and the economy isn't booming. It is a huge wall of worry that the market has been climbing. That has prevented this market from bringing in weak handed speculators who are easily shaken out by selloffs. The 2008-2009 bear market shook out those weak hands. The speculators and investors on board and in the market will not be easily shaken out. I repeat, these investors will not be easily shaken out. That is why the dips have been so fleeting, and the weakness so quickly bought. The weak hands already sold.

But things are starting to change. The market doesn't change on a dime, but its character changes gradually. These shifts take time. When the shift is complete, you get a sharp correction. With the recent surge in equity call activity and the increasingly complacent behavior of investors, we are using up what time we have left before this market becomes more two sided. It has been one-sided for over a year, and the signs of change are visible. The world markets are lagging the US, or breadth on a world scale for equities is weakening. US is strong, but Asia and Europe are lagging. The small caps have outperformed in this recent leg up, another sign that investors are reaching out for risk and return.

While things are lining up for a turn in the market, we have to remember that momentum is a powerful beast in the market. The stronger the momentum, i.e. 1995-2000, 2003-2007, the more likely it is to continue. And this market has very strong momentum. So how to handle a momentum market beast? Well, I would recommend following the uptrend, but the signs I mentioned above tell me that it is late in the momentum game. Yet, it still feels early based on anecdotal evidence and overall dissatisfaction with the economy and jobs. Ultimately, I'd like to see investors more positive on the economy and jobs before I am comfortable with an intermediate term short position. Yes, that is a very contrarian stance, and contrarians usually get crushed in trending markets. But from a very long term point of view from 2000 to present, going short follows the trend of lower equity prices and lower valuations.

Friday, April 23, 2010

It feels like the last hour is always up. I don't remember the last time we really had a hard selloff into the close. It has to be a few weeks. We are at new highs and I am losing on my short. I don't really want to hold overnight into this kind of momentum. I am sure eventually the short side will pay off big. I just don't want to lose my shirt before that happens.

I think we've gotten a little ahead of ourselves ahead of a possible event filled weekend, so I think traders will take risk off in a few hours time. I have gotten short into this rally and will wait for weakness later today.

Well, we have counterforces at work. MSFT and AMZN are mild disappointments, so that caused the futures to start off weak after the 4:00 cash close. We have Greece asking for help, which relieved the investment community for some reason, and that bounced the market back higher. Greece is just a tool for speculators to move the market up or down on a whim. I still believe that the worries over European sovereign credits is overblown, and what will matter is that the demand for equities will remain weak, increasing supply is coming from IPOs and secondaries, and overvaluation will work against the market going much higher. In the meantime, I continue to advocate hit and run trading from the short side on extreme short term overbought readings.

I expect a small dip in the first hour and then a steady grind higher for the rest of the day.

Thursday, April 22, 2010

I think after a day like today, the bears have to be demoralized. This market probably needs to get to new highs before we can get a meaningful pullback. The momentum is just too strong and any swing short positions are dangerous. Bears got hammered intraday.

One thing I've noticed besides the lively volatility is the heavy volume that we are trading on the ES. In general, when we have this kind of heavy volume in an intraday non-trending day, it tells me the market is having a hard time continuing its current short term path, which today is down. It doesn't mean we can't weaken into the close, but it does tell me that we are less likely to have much follow through selling below today's lows either tomorrow or Monday. There seems to be a lot of buyers at lower prices waiting for the pullback.

What is the formula for pounding the futures without anything substantial happening? Mention the keywords Greece and bonds and credit spreads and you have an automatic big gap down. Greek credit spreads are blowing out again and fears of another needed bailout are hitting the rumor mill. The Europeans are losing it again over Greece, a cancer on the whole continent that doesn't go away. I am sure the US will ignore this and it will be just another buying opportunity, but it does keep the bulls on their toes. I am targeting 1191-2 as good support and yesterday's cash close at 1202 as resistance. I see no runaway downtrend today.

Wednesday, April 21, 2010

Yesterday's intraday chart and today's chart is basically a mirror image. The high and lows of the 2 day chart intraday is 1207.5 and 1195. Even though I missed a good opportunity on the short side today, I am not displeased. In this type of momentum bull market, I only want to take the most favorable short setups so I will miss a few good moves here and there. I expect a small gap up tomorrow.

The CDS spreads are blowing out not only in Greece, but in Portugal and Spain. This explains the weakness in the Spanish market and also the overall weakness in Europe while the US is basically unchanged from yesterday's close. Also note that China has been lagging the past few days as well due to new property regulations. The storms are brewing, we can get whacked hard at anytime. I have yet to pull the trigger on my short, but I want to do so soon.

Not good for the rest of the stock market. AAPL strength only tells you that they have got consumers hooked on their overpriced products. It doesn't tell you that the tech world is booming. Fads are not economically sensitive, but time sensitive. I would think shorting techs today will look good a few days later.

The market got a pop on the AAPL news but its been fading in premarket. It looks as if the market has reached a point where there are not enough eager buyers even with AAPL news. I don't want to make too much of the premarket action, but Europe is weak, especially Spain. We stalled out at 1209.50 overnight, that is pretty close to the highs from last week. I don't think that's a coincidence. 1210 will be hard to overcome this week. I am looking short but I haven't pulled the trigger yet. I think we probably have one more day of placid trading before the plug gets pulled.

Tuesday, April 20, 2010

Maybe I am just overthinking this, but it seems like for over a year now, dip buying has worked every single time and the dip buyers have hardly had to sweat an extended slide in the market. The dip buyers haven't really faced a test since March 2009. It has gotten too easy to be long. In line with the bullish sentiment and low put/call ratios and lack of bears, we are setting up for a downtrend within the next few months. I am not talking about a 2 week downswing. I'm thinking 2 to 3 months of lower highs and lows. In the meantime, I am in hit and run mode and will wait for only really good sell setups to short. I am reluctant to go long under current conditions.

From the news and the angst over Goldman Sachs, it would seem like the market was down quite a bit. But we're only 10 points from new highs. The damage was minimal and brief. We are back to flight cruise mode. I expect us to continue squeezing higher challenging the 1206 area. The dip was just another buying opportunity. As partridge said in Reminscences, "it's a bull market."

Monday, April 19, 2010

The last 2 hours of trading is what you call a short squeeze. Anybody who was short or underinvested decided they don't want to miss the boat and decided to jump in at the same time. The market just doesn't quit, and the bears have no staying power. I noticed that the financials were the outperformers today and small cap underperformed. I think the financials strength was based on C and the shorts scrambling as GS refused to go down. I think the small cap underperformance is a sign that this rally is starting to run out of gas. I will be looking short for Wednesday probably.

Well the initial rush to buy failed this morning and we are slowly building up resistance just above as we have some bagholders in the 1190s and 1200s waiting to sell any rally. I am not that bearish short term, but I also realize the risk of going long here with complacency still high. It is no man's land at 1184, we are not high enough for a good short, not low enough for a good long. I am going to use any rallies to short but I will stay away from buying selloffs unless they are heavy. Goldman Sachs reports earnings tomorrow, and we have Apple after the bell on Tuesday. Apple could be a market mover, and I am sure there will be a lot of manuevering ahead of that report. I can't picture any heavy selling in the market ahead of it tomorrow.

We have a bit of fear based selling this morning. I am now flat and going to try and reshort at higher levels tomorrow. I think we will get the usual Monday morning dip buyers and we are close to the lows from Friday. I don't want to try to catch the falling knife so I will wait to reshort, not go long.

Saturday, April 17, 2010

Sometimes I like to play poker. Lately, I've tried to come up with some analogies with trading and poker. I've had to stretch in to vague generalities to find similarities.

I've never thought that there was a close relation to trading skills and poker skills. The mechanics of success in both games are different and trading requires much more dynamic skills. Poker has only so many variables but trading the markets has a seemingly infinite number of variables that affect prices. I am biased, but in general, I believe those that are successful at trading are more talented than those that are successful at poker.

That being said, the chances of success for being a professional trader are higher than a professional poker player. One, the rake in poker is higher than in trading and the market is so much bigger that the opportunities to make money in trading are much greater than in poker.

In poker, playing by the book is playing tight and aggressively. I don't think that's the best way to trade. If you trade waiting for only the best setups, you miss a lot of 60-40 setups which are positive expected value. Also, there is less luck involved in trading than in poker. In poker, the randomness of the deck can win you a big pot or lose it for you. Sure, there are economic and earnings reports that seem random, but there are often small clues to whether the numbers will beat or miss. In trading, the action is less random, there are patterns, which repeat often but with slight variations. In poker, the way the cards come out is totally random, there is no pattern. There is a pattern to the way people play their cards, but no pattern to how the cards come out. In trading, there is a pattern to the way people trade and also there is a pattern in the way prices move. Thus, trading rewards pattern recognition skills much more than poker.

There is one thing which I do think is similar to poker and trading. That is a person's psychology when winning or losing. In poker, players tend to play worse when they are losing and better when they are winning. Poker players often go on tilt and stray away from their strategies to try to make their money back quickly. In trading, it is the same way, when traders are losing, they tend to question their strategies, chase trades, and lose their patience. When down, poker players as well as traders are in a hurry to make their money back. It is easy to be patient when one is winning. Hard to do when one is losing.

Friday, April 16, 2010

The action today comes after we had the two highest ISEE call/put ratio readings in its history. I don't think that's a coincidence. Over the past 2 months, complacency has slowly been building up and it climaxed on Thursday. It makes me believe that any dead cat bounce will be an excellent shorting opportunity.

Today is a classic example of the danger of buying overextended markets that seem to float forever. You can get whacked for 20 points in a flash on any kind of bad news. The Goldman fraud charges are not that big of a deal for the rest of the market, but this market was so complacent that even this bit of news crushed everything. I expect us to continue trading weak today due to the massive amount of complacency and the lofty levels of the current market. It is now back to a trader's market, the bears are back.

If we are going to go by history and believe that what happened in the past will repeat, then we should sell off soon and retrace down to 1150. That is what should happen. But this market has defied the odds to keep going higher despite high levels of bullishness, lots of complacency, and a lack of fundamentals that support these levels. It feels like a bubble. I am still in hit and run mode but I am going to hold on to the short until I see a dip. Then I will cover and reshort after the next run. The swing short position will have to wait. If I see a bit more volatility in the coming days, that should be a strong signal that we are exhausted on the upside. We have yet to see that.

Thursday, April 15, 2010

I know I am picking at straws but there has been some weakness today in the REITs and also in C, I think we've reached the point of maximum optimism for financials, REITs, and tech. Despite the extremely low equity put/call ratios, we have basically traded close to flat on the day. Usually you don't see very low equity put/call ratios when the market is just flat. I think the market could have a sell on the news tomorrow after GOOG and BAC announces. The Street is leaning too bullishly going into these reports.

The ISE options exchange, which keeps track of opening puts and calls traded, has just hit astronomical levels I have never seen before. 553! We are in outer space as far as calls relative to puts traded. I don't know how much longer this madness can continue, but it seems extremely artificial to me.

The skew in the volume of puts and calls traded tells me we will have some volatility in the remaining time till expiration. I am betting that it will be to the downside, since we're already so stretched to the upside. It looks like this market will never go down, and usually when that happens, we get a short term pullback. But even if we selloff, I bet the dip will be bought voraciously. GOOG and BAC earnings are set for after the market closes. I will have to guess that they will beat estimates. Surprise! I can't help but think that a lot of this buying is in anticipation of overall blockbuster earnings and fund managers are determined to ride it out during earnings season and sell before all the others do. I think we can have a selling stampede sometime before this month is over.

Wednesday, April 14, 2010

The beat goes on. The blockbuster earnings continue, and UPS is trading up in AH. It is starting to get euphoric. Do you think fund managers will risk underperformance by selling ahead of all these good earnings coming up? You think they want to sell in front of GOOG and BAC earnings tomorrow? I doubt it. They all seem to have the same game plan. Sell after all the good earnings come out at higher prices. I think they will end up trying to squeeze out of the door at the same time and the selloff could be quite sharp.

Another thing I like to look at to keep score on the amount of risktaking and speculation is the Russell 2000 vs. the S&P 500.
As you can see today, it is no contest. The small caps are massively outperforming, continuing a trend since February of small cap outperformance.

This market only goes up. We have busted through 1200 and there is no stopping this market. Everyone has turned bullish as even the traditionally bearish on Fast Money halftime report have gone bullish. I expect a nasty reversal that can happen at anytime. I am sticking with my short position and will sit tight.

I am seeing some comparisons between the rally into January and the current rally. Yes, there are quite a few similarities, the timing is similar, with the rally extending into the start of earnings season, the VIX reaching new 52 week lows, a cratering of bearish sentiment, and almost no weakness in the prior month.

The differences are harder to find but there. We didn't have a scare like Greece before the January rally, unless you call a 1 day Dubai selloff a scare. We also had more bulls in January according to sentiment polls than now. In other words, traders were less prepared for a deep selloff in January than they are now. This makes me conclude that the top will be a longer process and we'll need to probably trade longer at these levels before we can reverse. I am still in hit and run mode, and will not be hanging to shorts for too long. I think we'll sell off on this gap up on the INTC and JPM news.

Tuesday, April 13, 2010

Well, it looks like we will have another gap up tomorrow, INTC has beat estimates and INTC is spiking higher on the news. The spike higher in the last hour was a bit surprising, but we are so close to the top that I am not going to worry about a few points here. I will keep my short bias and I believe the top is getting closer. The trend of weakness that lasts less than 2 hours continues. The speculation in stocks like ABK has gone overboard, the market is frothy.

I don't think I am alone in trying to pick a top in this market. It has been frustrating to find the turn, and there have been few clean setups. That is what happens when the market just grinds higher bit by bit and rarely moves to short term extremes. I can feel the top, price wise we are very close. Time wise, we could chop near 1200 for several days. INTC reports earnings after the close today, that should be good for some movement in the futures tonight. As for today, I think we will just chop around, I am neutral here.

Monday, April 12, 2010

I've been waiting for a good sell opportunity and I think this is one. I'm putting in a bit of short exposure here. With the Greece bailout catalyst out of the way, I see no other bits of positive news that can signficantly run this market higher. I believe strong earnings are already baked in, and there is more supply coming with IPOs, secondaries, etc. Also, sentiment is a bit too one sided as evidenced by the heavy equity call volume relative to puts over the past couple of weeks. Not looking for much, maybe a couple percent selloff this week.

I was expecting the gap up from Sunday night to hold and wanted to sell it this morning around 1197 but of course this market refuses to cooperate. The easy setups last for minutes and the bad setups last for endless hours. Welcome to the 2010 market. I wanted to short so badly this morning but I don't want to short in the hole (speaking of AHs) during such a strong uptrend. I may sell short anyway, but for smaller size than I wanted to. We are near trend exhaustion.

Saturday, April 10, 2010

I have always been on the bearish side when it came to trading. I guess it's because throughout my career, equities have usually been overvalued. Yes, there was a brief time in late 2008, early 2009 when the markets were relatively cheap, but not dirt cheap. Other than that, the markets were never undervalued, not even during the darkest hours of 2002 and 2003. But now that we are approaching 1200, I see overvaluation in equities and bonds. If someone forced me to invest money, I would buy commodities. But even commodities will struggle when the markets go back to a downtrend, most likely next year.

Thus, the opportunity that I see brewing for next year is on the short side. Right now, I am sure we will get a small selloff soon. I just don't see that 15-20% whopper of a selloff anytime soon. It could be a long year for those stubborn about shorting the market.

Before a change in a long trend, you have to see more back and forth trading, and we just haven't seen that yet. In the top of 2000, there was quite a bit of choppiness from March to September, before the downtrend was well established. In the top of 2007, there was that choppiness from June to December before the downtrend caught a head of steam. Now I don't see a selloff of similar magnitude next time because I don't think we'll be able to go high enough to cause a big crash. But I can picture a scenario where we get up to 1300, probably late this year, and chop around between 1200-1300 and then go down slowly in Chinese water torture fashion to 850 over a couple of years.

With these long persistent uptrends, the short side is hard to play because the selloffs are so shallow and fleeting. But I think one is coming up soon. The sentiment has got too one-sided. However, until we get the choppy back and forth trading for several months, I won't be confident that we have topped out. Till then, I will hit and run for a few percent here and there. It is not worth it yet to take an intermediate term swing position.

Friday, April 9, 2010

Based on the last little surge, I expect a gap up for Monday and I will be going short into it. I think that will prove to be the top of this move. I expect a definite increase in volatility next week as earnings come around and we start topping out. My original target for a short entry was 1195, or SPX 1200 which is only a few points away. SPX 1200 should prove to be a substantial road block, more than 1150 was. The risk reward for a short is very compelling.

I think we are topping out here. Crude oil is lagging and down 1% on the day. I will not rule out a few more points of upside, perhaps to 1195, but this market is set up for a trip down to 1160 within a couple of weeks. I am still debating whether to get short ahead of the weekend or to short Monday morning. I don't expect much of a gap up or down.

We are gapping up a bit from yesterday's close, right around new highs. On a Friday, after a comeback yesterday, we are probably going to be short of fuel to propel us much higher. There is nothing market moving as far as economic data or speeches today. I will be looking to sell this morning looking for a morning pullback. I am not looking for much, just looking to pick up some pocket change before the weekend.

Thursday, April 8, 2010

The market gave the bears a sample of some honey this morning and ripped it away. New marginal highs look to be on the horizon as we head into earnings. I don't think the shorts want to be short ahead of the weekend so we'll probably get the last bit of short covering tomorrow. I think 1188 is in the cards for tomorrow which looks to be very close to the top of this move.

Well the weakness lasted for about an hour and we have been going straight up as we've done so many times in the past. It seems like this market is going to rollover and then we exhaust the selling and melt up again. The pullbacks are so shallow I can't imagine the dip buyers getting much of a chance to get long here. The momentum is ridiculously persistent, the selling is unmotivated. We'll likely hit new highs again before the next downturn. If Greece fears can't bring this market down, it has to be something else. Or maybe just a sell on the news from baked in the cake strong earnings season.

This is the storyline that never goes away. How many times will we hear about Greece debt? Greece is ONE thing that I doubt will crash this market. Its got to something less expected, maybe a Spain meltdown or Fed raising rates. I think we'll bottom in the morning and go right back up to finish strong, filling the gap and going positive on the day.

Wednesday, April 7, 2010

We are in the process of forming the top, and this pullback will likely be bought and we'll probably test 1188 again later this week. There is no urgency for me to trade the 1% swings. I might miss a few little opportunities, but I want to be well positioned when the golden opportunity arrives. I am leaning towards a gap up for tomorrow and probably reaching at least 1186.

The back and forth action based on Fed speak has taken us nowhere. Bernanke seems intent on building more bubbles and looks like rates will be at zero for the rest of the year. I wonder if it will take $150 oil before Fed increases rates. Looks like more free money. Hard to fight that on a fundamental basis for a short.

Something smells fishy today. I think this gap down is to tempt the suckers to buy at the open. Just seeing way too much complacency for us to keep going higher. Nah, I am just dreaming, can't imagine this market actually gap down and not go straight up.

I am itching to get short but I want to wait for one last run higher before putting down my bets. We are biding time before earnings start coming in next week. Strong earnings are already baked in to current prices. I see no positive catalyst.

Tuesday, April 6, 2010

There was a slight dip based on some Greece news in premarket but that's been shrugged off and we are back near 52 week highs on all the indices. Small caps are continuing their outperformance. The market is very complacent, but there is no real movement for me to act on. I will not short such a dull market.

Small caps have been outperforming throughout this rally. Noticed near the close on Monday that the Russell 2000 index made a burst higher which looked index/futures related. Smells like a bit of capitulation. There was already a wide divergence between small caps and big caps during this rally from February. We had similar, but smaller divergences at short term tops in September, October 2009 and January 2010. To me, it looks like we are getting very late in this rally when you get this kind of divergence. The pieces are coming together for a significant top.

Monday, April 5, 2010

We are getting closer to the turning point but not quite there yet. I think we'll get another bump higher after today's Fed meeting is out of the way. Just sitting on my hands and respecting this strong trend.

I think we will go higher before we get that pullback. I think 1195 is in the cards this week, but I think that level will be where there is serious supply and the market will turn back towards 1150. My strategy is to wait for the market to drift higher and then put down my shorts. There is no need to hurry into a short position. The nonfarm payrolls came in just right, according to analysts. The crowd is starting to get bullish.

Friday, April 2, 2010

The good news is out. It was well expected and the number came in around consensus. The futures have a slight knee jerk positive reaction. It is a tricky juncture right now, the markets are overextended and the bearishness is almost nonexistent and good economic data comes in. But a lot of people are looking for a pullback but think we will go higher after that. Hmmm. Something to think about. Happy Easter.

Thursday, April 1, 2010

We are going to be getting the nonfarm payrolls tomorrow and the futures will be trading on a holiday. Goldman already came out blasting with their payrolls estimate downgrade, which means they were short and wanted the market lower today to cover. There are big expectations for this number, so I think it will likely disappoint.

Well, that was a blind shot. I don't think too many traders saw that coming, including me. Looks like the fund managers were so eager to get in on the first chance in Q2 that they rammed this market higher than it should have gone. I still think we will hit 1190 before 1150. I am neutral here, but I think we'll be higher next week than current levels. For today, the trading seems random to me, but there is strong support around 1166 and now resistance at 1170.5

It is the start of a new quarter, and the day before a holiday. That can only mean one thing. Buy. Buy. Buy. The buyers are getting more and more impatient waiting for that pullback that never appears. I think we can keep squeezing higher as the next few days should bring out more impatient buyers after the nonfarm payrolls and ahead of Q1 "blockbuster earnings" for everybody. It seems insane to fight this kind of momentum so I won't. I will likely do little today. I think 1195, which equates to 1200 SPX will be a time to make a stand on the short side. I hope I get that chance next week. I will grab a swing short at those levels.

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